Wendy sold property on the installment basis in 2011 for more than her basis in the property. Wendy was to receive installment payments at the end of each year for the next five years. In 2012, before she collected on the installment obligation for that year, Wendy gave to her daughter (Wilma) the installment obligation so that she could collect the four remaining installments.
A)Wilma must recognize the gain from all the amounts collected on the installment obligation in 2012 and subsequent years.
B)Wendy must recognize the gain each year when Wilma collects on the installment obligation.
C)Wilma must recognize the remaining installment sale gain in 2012.
D)Wendy must recognize the remaining installment sale gain in 2012 and Wilma will not recognize gain from collecting on the installment obligation.
E)None of the above.

Question

Quizplus · Accepted Answer

As per the rules, when an installment obligation is transferred, the transferor is responsible for any income that has not been realized prior to the transfer. Therefore, Wendy must recognize the remaining installment sale gain in 2012. Wilma will not recognize gain from collecting on the installment obligation.

Wendy Sold Property on the Installment Basis in 2011 for More